The judgement has been released following a substantive hearing unlawfully held in private on March 22nd 2021.
This matter relates to a dispute between two parties who are, or claim to be, secured creditors of "The Borrowing Company" as to the priority of their claims to a fund of some £902,500 ("the Fund") held by Mr J and Mr H ("the Borrowing Company Administrators") following the sale by them of Arboretum's business and assets.
The two creditors are Saving Stream Security Holding Ltd ("SSSHL") and SIL ("SIL").
Application 1
An order that in the absence of any application by SSSHL or SIL they be authorised to distribute the Fund to SSSHL.
Application 2
On 22 September 2020 the administrators of SSSHL and on behalf of SSSHL itself, sought an order that the Fund be paid to SSSHL
Application 3
On 14 October 2020 SIL sought an order that it has standing to challenge the validity and/or enforceability of loans made by Lendy Ltd ("Lendy") to Arboretum, and/or the security held by SSSHL which purports to secure those loans.
Application 4 - The only application dealt with
Does clause 2.9 of the Intercreditor Deed dated 19 March 2018 prevent [SIL] from issuing a claim to challenge the entitlement of [SSSHL] to [the Fund] pursuant to the security given by [Arboretum] to [SSSHL]".
Background
Arboretum wished to borrow to fund the purchase of a site in Devon and its development into holiday chalets.
Lendy operated a peer-to-peer lending platform under the trading name "Saving Stream" by which it coordinated funds from various investors and made loans on their behalf to commercial borrowers. On 5 September 2016 it entered into two loan agreements with Arboretum as Borrower, referred to as a Land Loan and a Development Loan. They were in similar form and it is for the most part sufficient to refer to the terms of the Land Loan document, which provided:
i) Lendy, defined as "the Agent", entered into it "as agent for the Lenders", defined as "the persons who have agreed with the Agent from time to time to provide all or part of the Loan to the Borrower and whose names and addresses are maintained by the Agent". The Lenders are not named or further identified in the loan agreement, nor are any details given about any arrangements between them and Lendy, such as the amounts they have agreed to lend through the Lendy platform for these loans.
ii) The operative provision was clause 2 by which "The Lenders [agree] to lend to the Borrower the aggregate amount of the Loan…in the proportions that they have agreed with the Agent".
iii) Security was to be provided by way of security documents granted to SSSHL, defined as "the Security Trustee". Arboretum granted a debenture to SSSHL dated 5 September 2016 creating fixed and floating charges over all its assets and undertaking.
iv) There is reference to a Term Sheet, which is not before me but was clearly intended to list the security documents to be provided and set out matters such as the amount of the loan and the specified repayment date.
The Land Loan was to be drawn in one tranche, but the Development Loan provided for multiple drawdown requests as required from time to time to fund the costs of construction of the chalet site. The exact total amount lent is not apparent from the documents available at the hearing and is not likely to affect the outcome, but it appears from the Statement of Affairs that by the time Arboretum went into administration in May 2019 it accepted that it had received advances of about £6.8m in principal amount under these two loans, on which interest of about £1m had accrued.
Separately but also on 5 September 2016 SIL agreed to lend Arboretum some £4.23m. Arboretum also granted security to SIL by way of a debenture dated 5 September 2016.
About 18 months later on 19 March 2018 Arboretum granted further security to each of SSSHL and SIL by way of legal charges over the property it had by then acquired, and Lendy, SIL and Arboretum entered into the Intercreditor Deed that is in issue before me.
It provided, in general terms, that the security in favour of SSSHL would rank in priority to that held by SIL up to an amount of £7.845m, plus interest.
The Arboretum administrators were appointed in May 2019 and in December 2019 sold the business realising a sum in respect of the land sold, net of costs, of £902,500 which is the Fund now in issue.
It is accepted that on the face of it and subject to the challenges SIL seeks to make this fund is caught by the fixed charges in favour of SSSHL and SIL and so by virtue of the priority given by the Intercreditor Deed would be entirely payable to SSSHL.
The purchaser was a company called CL. No connection between it and SIL has been acknowledged, but it appears likely that there must be some such connection because CL negotiated provisions in the sale agreement that allowed it an opportunity to explore whether Arboretum might successfully challenge the validity or enforceability of SSSHL's security and a period in which it could exercise an option to have any claim that Arboretum might make in that respect assigned to it. It is difficult to see how the successful pursuit of such a claim could benefit CL, though it would clearly be of benefit to SIL. At all events, although it apparently obtained a favourable opinion of counsel, CL did not take up the option to have any claim assigned to it and that option has now lapsed.
Key Points
"To postulate such an intention on Arboretum's part suggests something approaching deviousness, which it would be most unlikely that Lendy or the Lenders it acted for would have agreed to."
"If Lendy had some investors for whom it could act as agent, but not enough to provide the whole loan, it may be that Lendy made itself liable for the balance on the basis that it acted as purported agent for a non-existent principal."
"For these reasons, in my [HHJ Cooke] judgment, on the true construction of clause 2.9 of the Intercreditor Deed that clause does prevent Shoby from bringing the challenge it proposes."
